Liberty. It’s a simple idea, but it’s also the linchpin of a complex system of values and practices: justice, prosperity, responsibility, toleration, cooperation, and peace. Many people believe that liberty is the core political value of modern civilization itself, the one that gives substance and form to all the other values of social life. They’re called libertarians.

Wednesday, October 24, 2012

The U.S. Federal Reserve Should Be Declared a Currency Manipulator

The U.S. Federal Reserve Should Be Declared a Currency Manipulator

In the two presidential debates
that focused heavily on the economy, there was not a single mention of
the Federal Reserve. This is clearly worrisome since the U.S. central
bank has a huge impact on the economy. With the Federal Reserve largely
to blame for the recent financial meltdown and the rapidly declining
value of the U.S. dollar, this is an important economic issue that the
presidential candidates should be addressing.

However, Mitt
Romney seems to focus more on China’s currency than the U.S. dollar.
During last Tuesday’s presidential debate, he pledged to declare China a “currency manipulator.”

On
Day 1, I will label China a currency manipulator, which will allow me
as president to be able to put in place, if necessary, tariffs where I
believe that they are taking unfair advantage of our manufacturers.

The
extent of the yuan’s misalignment is unclear but the value of Chinese
currency has not significantly affected the U.S. economy. Simply put,
foreign trade is not to blame for our economic woes.

Retaliation
aimed at the value of Chinese currency will likely create more problems
than it solves. Mitt Romney’s proposed tariffs on Chinese goods will
hurt consumers and could trigger an unnecessary trade war. Taxes are
tariffs that will ultimately get passed on to consumers in the form of
higher prices for goods. The last thing we need is policies that would
hurt struggling families trying to make ends meet during these tough
economic times.

With China being one of the United States’
largest trading partners, a trade war would do immense damage to the
U.S. economy. If China retaliates by buying goods from elsewhere,
American exporters will be hurt in the process.

And don’t forget that China holds nearly $1.2 trillion in U.S. Treasury debt.

"The party that loses the most in a trade war is the one that has a big deficit. We have a big dependency on China," said Axel Merk, president of Merk Mutual Funds, a Palo Alto, Calif.-based money manager specializing in currency investments.

Romney
would be wise to focus more on the value of the U.S. dollar. It’s more
than a little hypocritical to say that China needs to be punished for
keeping the value of the yuan artificially low when the Federal Reserve
is devaluing the dollar through numerous quantitative easing programs.
As my colleague Dean Clancy writes on his Twitter page:

The dollar has lost over 95 percent of
its purchasing power since the Fed was created in 1913. It’s time to
take a hard look in the mirror and realize that U.S. Federal Reserve
needs to stop devaluing the dollar before it’s too late.